These days, buying yogurt or ice cream offers a lesson in business value.
Take my favorite Breyer’s. What used to be a 1/2 gallon container went to 1.75 quarts…then quickly to 1.5 quarts. The near-imperceptible change seems to go unnoticed by most consumers, thus the prevalence of this sneaky way of controlling cost. Instead of raising the price, companies reduce the quantity.
And ice cream is not alone. One pound of coffee is now 11, 12 or 13 oz. A 1/2 gallon of orange juice is now 56 oz. A cup of yogurt is now 6 oz. Even toilet paper has caught on…spartan Scott 1000-sheet, single-ply rolls are now narrower.
That’s what happens when you get commoditized. COGS become a bigger and bigger piece of the economic decision process. This happens in every market…from inexpensive consumer goods to big-ticket electronics to industrial purchases like jet engines.
Maintaining price leverage means maintaining either real or perceived differentiating value. Perceived value is why Coke gets more per oz for its product than other cola drinks. Real and/or perceived value is why IBM can charge more for services than many smaller firms. And many would argue that perceived value is why Apple customers are willing to pay double the price for their purchases vs. Dell customers.
In the tough economy, with price-sensitive consumers influencing decisions, companies are foregoing the tough work of value creation in favor of product shrinkage to maintain a price point. But, this is not a long-term business strategy. And even if the recession drags on, eventually, companies will need to find a way to coax more dollars from thrifty consumers.
In the past, marketing alone could bolster a product, but the Internet has leveled the field in many ways, thus forcing companies in many industries to rethink value concepts to help drive differentiation and brand leverage. It is something every business must do to maintain pricing power.
And so, my ice cream purchase has helped me to focus again on how I drive value in my company. Hopefully it can help you do the same.